Joules falls due to lower sales and squeezed margins

There was a lot of red ink, literally and figuratively, in the group’s latest trade update “premium British lifestyle” Joule (JOU: GOAL) while the company delivered a pessimistic assessment of its performance in December and January.

Investors sought the exit en masse, sending shares down 40% to 71p with nearly four million shares or 4% of issued capital trading at 10am against average daily volume of less than 200,000 shares.

SALES UNDER BUDGET

Although sales for the nine weeks from the end of November to the end of January increased by 31% compared to the previous year and by 19% compared to the same period in 2019, they were below management’s expectations.

The company cited a litany of reasons for the shortfall, ranging from lower-than-expected footfall in January due to the Omicron variant to delays in new stock arriving due to supply chain issues. supply.

The lack of new inventory resulted in a lower full-price sales mix, which impacted revenue and gross margin. Additionally, wholesale revenue was lower due to delayed inventory, with some customers even canceling their orders.

COSTS SPIRAL

At the same time, the company suffered a significant increase in costs not only due to rising import duties and freight rates, but also from its distributors who passed on their own increased costs under form of labor.

Third-party logistics companies like wincanton (TO EARN) and Xpediator (XPD: GOAL) enter into open book contracts with many of their customers, giving them the ability to pass cost increases directly on to them, thereby protecting their own margins.

Joules revealed that its distribution center costs were £1.2m higher than management had expected in December and January, and while its own wage pressures eased after the peak period, they were still higher than a year ago.

MAJOR OVERHAUL

The company has already cut head office costs, marketing costs, and capital expenditures, and offloaded older, slow-moving items through third parties to clean up bridges. It is also implementing price increases for the next spring/summer collection.

It expects sales for the rest of the year to recover in line with its original forecast, helped by higher levels of new inventory and normalized delivery times. On this basis, profit before tax should not be less than £5 million compared to £6.1 million the previous year.

However, with net debt of £21.5m and a total cash margin of £11.5m, the group doesn’t have much room to maneuver if trading doesn’t improve. Investors will definitely want to see audited interim results including the going concern analysis after today’s trading update.

LEARN MORE ABOUT JOULES HERE


Date of issue: February 01, 2022

Sallie R. Loera